Microfinance and Poverty Reduction in Rural Southwest China: The Yilong Experience

Despite great achievement in poverty reduction in China, poverty persists, especially in mountainous rural areas. One important cause of poverty is financial exclusion from formal financial institutions. Without access to credit, rural poor would be unable to respond to income-generating opportunities and climb out of the poverty trap. The Yilong experiment represents a new model of “cooperative poverty reduction” based on microfinance scheme through coordination and cooperation between government, NGOs and poor farmers. Modeled after the Grameen Bank and spearheaded by the Association of Rural Development of Yilong (ARDY), a microfinance NGO, the Yilong experiment is characterized by group lending and dynamic incentives. To better target the poor and their needs, it emphasizes on farmers’ active participation in village poverty reduction cooperatives and capacity building for mutual help among the poor. Beyond mutual assistance in credit and production, these cooperatives also engage in joint purchase of production inputs and marketing of member’s products. Based on field research in the summer of 2010 and continuing telephone conversations with ARDY secretary general, Gao Xiangjun, this paper analyzes the Yilong experience, especially the role of ARDY in the formation and operation of the cooperatives and their impact on the poor and implications for poverty alleviation